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Wednesday, February 21, 2018

What to Do with Extra Disposable Income?

Today I have a great guest post for you.  More awesome ideas on what to do with any disposable income you come into.  Enjoy!

If you've recently come by some disposable income, you may not be sure what to do with it.  You can spend it all right away, but some people will agree that it's not the best idea.  Of course, the next option is to put it into a savings account.  However, with interest rates being what they are, you may not be enticed by the prospective gains.

Fortunately, in our modern world, you are not limited to a single course of action.  There are plenty of options for a person who is willing to do a bit of research and put some trust into alternative sources of income.

Invest In Gold Or Other Precious Metals

Not only is gold one of the oldest and most trusted currencies in the world, but it's also among the most stable ones.  Many people turn to gold in times of crisis because it's tangible and valuable.  However, if you decide to invest in gold, you don't even have to have gold in your immediate possession.  You can store your gold safely in the specialized vaults of financial institutions and just reap the benefits.

However, you need to know when and how to invest in gold, since it has its peaks and nadirs.  You should consult with experts if you want to invest in precious metals.

Peer To Peer Lending

One of the most intriguing and novel approaches to money lending is P2P or peer-to-peer lending.  In essence, people can put their money at the disposal of others through a platform such as Silverbullion.com.  The return you can expect from this type of investment is much higher than your standard savings account.

These loans are protected because you're never lending a full sum to a borrower, just a fraction.  If the borrower defaults, you only ever lose a fraction of your money, which can be easily recuperated.  If you're interested in learning more about P2P lending, go here: About Loans For Lenders Guide.

Buy A Car Park

If you have a longer investing time frame, you should invest in real estate to let.  Things like flats and offices are great investments, but they do come with high maintenance costs as well.  Car parks, on the other hand, require very little in the form of maintenance, AND they're a necessary part of modern civilization.

Car parks in city centers, as well as airports and large sporting venues tend to be the most lucrative, but any car park is certain to generate steady income, and recover your initial investment several times over if you hold it long enough.

Vintage Items

Buying a vintage classic car may seem to many like a mid-life crisis thing to do, but it can actually be a really smart investment.  Not only can you drive it and show off, but you may be able to sell it for a lot more money than you paid for it whenever you decide to sell.  However, you should consult with a classic car expert before you sink a considerable amount of money into this endeavor.  Some vintage cars may not have the necessary allure to be considered a "classic" so your money may be wasted.

You may also try investing in fine wines and spirits.  There are some producers whose wines are surprisingly a stable and opportune investment option if you know where to look.  Just make sure you aren't tempted to drink your investment!


Whether you feel tempted to actually mine it, or you're more interested in trading them, cryptocurrencies are the big new thing in the financial world.  However, not everyone trusts these unregulated currencies, which is one reason their prices fluctuates so wildly.  The recent drop in the value of Bitcoin is perhaps a cautionary tale to be mindful when you put your trust into something so new and untested.

On the other hand, there are numerous other cryptocurrencies being created, which seems to tell us that this phenomenon is here to stay.  Putting your trust in these investments may be a big risk, but it could also bring a huge reward.

Invest In A Hotel

Finding the right kind of investment for yourself can be difficult, but hotels never go out of fashion.  Particularly in towns that attract many tourists.  You can have a hotel built, but there is a lot of paperwork to be done and permits to be issued.  The easier way of going about this is to buy an existing hotel or at minimum having a stake in one.  You'll get a portion of the profits each month, and you can stay at your own hotel any time you want!


As you can see, you don't have to be limited by banks and boring paperwork if you want to put your money to good use.  All you need is sound information and a willingness to take the plunge.

--Jaye Krause    

Monday, February 5, 2018

Neither Obama's Nor Trump's Stock Market

I find it somewhat amusing that people, devout members of either political party here in the U.S., attribute the success or failure of the stock market to the President.  They're obviously misinformed.  They have fallen for the partisan propaganda machine that each party can wield at any time whenever suitable.  The media fans the flame of this misconception to get ratings, clicks, subscriptions, and so on.

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During the State of the Union Address, President Trump made a typical Presidential error.  I say "typical" because I'm pretty sure President Obama did it too.  Trump took to congratulating himself and the Republican party for the added rise in the stock market since his 1st day in office.  It's a vote getting move, and you use what you have at your disposal to sway feeble minds.  If the market keeps progressively declining all the way to November, when the next elections take place, the Republican party will be hush on the stock market.  That's a guarantee.  Democrats will be loud, blaming the Republicans for the market drop.  Again, it's politics.

The people buy it.  They take to Twitter and Facebook, and everywhere else to talk the state of the stock market as it relates to politics.  If you're a Trump supporter, you defended the 1,100 plus point DOW point bloodshed today, no doubt using stupid arguments like: "It's still well above where Obama had it!"  Or, "It's an up and down market and it will come back!"  If you're anti-Trump, you had a great day, imagining Trump having to eat his words.  The fact is, Presidents have no control over stocks, bonds, and the markets.  But don't just take my word for it.  Let's examine the Obama presidency and compare it to the fledgling Trump presidency.

"Obama was a socialist!"

Republicans and conservatives hated the Obama presidency (Jan 20, 2009- Jan 20, 2017), taking every possible opportunity to critique him.  Similar to what the liberals and Democrats are doing with Trump today, right?  Obama was said to be "anti-business."  He spearheaded Dodd-Frank, and signed it into law on July 21, 2010, regulating the banking industry.  This should've been bearish for stocks, especially the financials.

What about corporate taxes?  During both of Obama's terms, the corporate tax rate was a whopping 35%!  One of the highest in the world.  Companies had to to send their free cash abroad to keep it from such heavy taxation.  Certainly this anti-business, anti-Republican (trickle down) policy should have been bearish for stocks.  I can recall good ol' Larry Kudlow on CNBC tearing Obama a new one almost every evening for his anti-stock market stance.

But what truly happened?  Was Obama's seemingly "socialist" position enough to derail the bull market?  No!  Under Obama, the stock market had a cumulative return of 233% and an annualized return of 16%.  Only President Clinton bested him.  But I'm not here to laud the work of Obama.  On the contrary, I'm here to say that one cannot attribute the rise OR fall of a market to what Presidents do.  Obama was Johnny On The Spot, inheriting from his predecessor one of the worst market conditions since the Great Depression.  And he reaped the benefits of what inevitably happens after a major stock market decline, a stock market rally!

Trump is a Businessman Who Is Pro-Businesses 

There is no debating Trump's 2017 Jobs Act and the Republican tax cut plan that lowered the corporate tax rate to 21% is pro-business.  It should be bullish for stocks.  In fact, the prospect of Trump becoming President and then the actual event of it was enough to produce a bullish signal.  Dubbed the "Trump-trade," many investors made money when Trump took office.  The Trump-trade is no more.  Old as Trump himself.

Companies are flush with cash.  Mad Money host, Jim Kramer, believes that things are not the same as they were immediately following the crash that gave birth to the Great Recession.  No...things are way better!  And he's not wrong about that.  Companies are repatriating their cash and not having to pay insane amounts of taxes doing it.  The economy, for all intents and purposes, is great!  Low unemployment.  Wages are starting to rise in some places.  Inflation is under control.  So what gives?  Why has the stock market tanked the past couple of days?

Image result for history of bull and bear markets since 1926

Trump supporters take note.  Your President inherited a bull market that may be on its last legs, meaning Trump is late to the party.  Through no fault of his own, he was elected at a time when the stock market was on year 7 of gains.  Since 1926, the average bull market  has been 9 years!  The Trump presidency still has three more years to go.  Even if the market should bounce back from this week's and last week's losses, the odds are heavily stacked against Trump.  Screaming "Make America Great Again" (MAGA) won't protect Trump or the Republicans from the whims of the market or its bear cycles.  If a Democrat was in office today, Hillary or whoever, they too would be at the mercy of stock market factors and cycles.

The Factors That Dictate Market Performance

There are certain factors that dictate how the market performs overall over time.  Economic markers are by far the greatest contributors to market performance.  Things like the amount of available cash in the economy, credit opportunity, wage growth or lack there of, employment, inflation, asset price appreciation, and so on.

The policy of the Fed in response to changes in the economy also dictate how the market will (or should) perform.  For example, when the Fed lowered the Feds Fund Rate to spur the economy after the crash of 2007, this was a bullish signal for the stock market.  And indeed, the market went on an epic tear.  The money went from safety (Bonds) to stocks in droves.  Nobody wanted a 10-year T-bill that was offering less than a 2% yield back then!

Of course you can also count on the fact that after each bear there will be a bull, and after each bull, there will be a bear.  So pay attention to the (roller coaster) ride!

Nobody Knows...

Nobody knows when a bull market will come to an end, or vice versa, when one will begin.  Nobody knows when a bear market will come to an end, or when one will begin.  Trump may be the greatest President whoever lived to some of you, but even he is no match for Mr. Market.  If you don't invest in the stock market, do yourself a favor and leave talk of the stock market out of your everyday conversation, especially if you are listening to talk radio or your favorite news channel.  Know that no President can help you make money in stocks.  It all falls on what you know, what you don't know, and what nobody knows.    

*If it seems to you liked I bashed on either Obama or Trump, you didn't get it.  Please re-read.

Friday, February 2, 2018

How Should Newbies Approach A Declining Stock Market?

What's happening everyone?  The stock market has had the worst weeks since before Trump's election.  It's a good thing the State of the Union was a couple of days ago, huh?  The DOW is down over 1000 points!  The S & P 500 is down over 100 points.  And the worldwide "growth" thesis is severely under pressure.  Stocks have just been slammed worse than a WWE wrestler going through a wooden table.

Image result for WWE wrestler going through a table

Is this the beginning of a worldwide bear market OR is it simply a speed bump, a time to catch one's breath so to speak?  Obviously it's too early to tell, but for market veterans, making money will require lots of Alpha so your stock picking game better be on point!

Declines like this gather particularly more scary energy when they come after years of seeing nothing but growth.  People who are risk averse will have a hard time staying in the market.  Many of them high-tailed it out already.  This isn't a time to panic though my peeps.  Keep your head!  This particular "dip" in the market is a great time to buy some stocks, and indeed, even the entire market via an ETF or mutual fund albeit in small increments.  So today, I have a way market newbies, those that have never invested in stocks, can lose their virginity and finally get in the game!

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5% At A Time

This approach is based on how much money you have saved for investing purposes, i.e., discretionary money.  Don't go pulling cash out of your credit card!  Let's say you have $10K to invest.  If I were you, I'd take 5% of this amount and buy every time the market loses a total of 300 or more (DOW) points.  First, you don't ever go "all-in" with your money.  This approach allows you to buy the dips.  Imagine a mile long road with multiple speed bumps.  You don't know when the speed bumps are coming, but when they do you have to be ready to plow ahead and not slow down.  Plow ahead means hitting the "Buy" button in this metaphor.

Listen, there is a 100% chance that the market will drop and go bearish after damn near 10 years of a bull-run.  It may not all happen in one fell-swoop.  Over the course of 2018, you can expect more market drops.  Heck, the market may even recover from this horrible week and get back to its epic tear.  But it will go bearish overall; it's just a matter of time.

Newbies who therefore buy-in systematically, 5% of their total available investing cash, will gradually lower their "cost-basis" and not be in "too early."  If the market goes up from here and you only plucked in 5% once, that's okay, you made some money...but don't buy in again until another major dip.  The bull is running on fumes!  Is this timing the market?  Yes, duh!  But it protects you from major losses if you invest a higher percentage of your money at one time.

Periodic Investing via Mutual Fund

Making periodic purchases of a mutual fund is the traditional approach to being in the market long-term.  Mutual funds allow you to make lump-sum share purchases, or to buy shares once a month on the designated date.  You have to authorize the mutual fund company (or your custodian) to withdraw funds from a linked bank account of your choice.  You get to decide how much you want to invest every month.

Drawbacks to this approach is that you first have to buy a minimum amount of shares to get into the fund.  Some mutual funds require a minimum purchase amount between $3K and $5K.  So already you're stuck putting in more money at one time than you may want.  If you're going to buy a mutual or exchange traded fund that tracks the overall stock market (an Index fund), get one that comes with the lowest possible fees at least.  Vanguard is a leader of low fees.  Their Total Stock Market Index Fund (ticker: VTSMX) has an expense ratio of only 0.15%.  Also look for "Low Turnover."  Turnover is how often managers are trading (buying and selling) the individual stocks they hold in the fund.  The more they "turnover" the more they charge!

Alright, it looks like the bloodshed has begun my peeps.  This is no time to panic or get skittish.  Have a game plan and plenty of patience.  This may just be the start to the downturn so don't put in all of your money at once and too frequently or you'll run out of capital to invest with.  Good luck!   

Monday, January 29, 2018

3 Fast Ways To Borrow When You're Strapped For Cash

What's up everyone! Today I have a guest post for you on what to do if you're hard up for some cash. Enjoy!

Regardless of your lot in life, sometimes you need cash fast. Whether it is to fix a broken-down car or pay an unexpected bill, you need money, and you need it quick. Some of your options for borrowing money, in this case, are online personal loans, credit card cash advances, and Memphis car title loans. These types of loans can often put cash in your hands right away, where loans from banks or traditional lenders could take as long as a week, or more.

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Credit Card Cash Advance 

You can get cash advances by using your card at an ATM, and if you need cash quickly, these immediate loans from your credit card issuer are a great option. These types of advances are often capped at some fraction of your credit limit - you can usually view this amount on your credit card bill.

Things to know: 
1) Cash advances don’t come cheap. The APR for these charges is much higher than for normal purchases, sometimes as high as 25%. 
2) Usually, there is a fee that applies for these advances around 3%-5% of the amount that is borrowed. The minimum fee is $5. 
3) Interest on these advances starts to accrue immediately after they are taken out. There is no grace period, so you need to make sure you pay off your loan as quickly as possible to keep the overall costs down.

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Payday Loans

There are many different vendors that offer quick cash in advertisements, sometimes even cash that can be accessed within the hour. These instant loans from payday lenders typically offer loans within 24 hours. These types of lenders don’t check your credit, but they do require that you have a bank account and a regular paycheck before you receive any money,

It is important to realize that if you don’t have the money to cover an immediate purchase, you probably are not going to have enough to pay the loan off with interest in a few weeks. This vicious cycle is how payday lenders trap so many people in endless cycles of debt.

Loans like this are typically due in two weeks, and they have an average interest rate of 391%. Other similar types of loans like no-credit-check or payday installment loans have similar rates, but they are typically pushed out over a longer period of time before they are due. If you don’t need the money on the same day, a good alternative to these types of loans is federal credit unions, which offer similar loans for a tiny fraction of the cost that payday lenders charge. The downside to credit unions is that it will take more than a day to be approved.

Car Title Loans: Fast Money for Your Use

Car title loans are quick. It is not impossible to get your money on the same day that your loan is approved, possibly even in a matter of minutes. It is not a complicated process so long as you have what you need. All you need is your car, your car’s title, and some form of photo ID. Car title loans are simple because you can get what you need simply, even within a short period of time.

Better Than A Sale

Sometimes, people resort to selling their car in order to pay off some sort of debt. This is often one of the first places people look to get quick cash. However, if you sell your car, you can't drive around to the places you need to go! If you want to get the money you need while still keeping your vehicle, just get a car title loan.

No Credit Check

Sometimes it is difficult to get approved for loans because banks and lenders look at your credit score to make sure you have good credit. Potential lenders are possibly hesitant to give you money if you don’t meet a minimum requirement. This is not an issue at all for car title loans because there is usually no credit check at all. Your credit does not represent you as a person, so you can get the money that you need as quickly as possible.

Minimum Paperwork

The process for obtaining a car title loan is simple. All you need is your title, your car, and a photo ID.

Flexible Payments

There is a lot of flexibility when it comes time to paying off car title loans. Options to choose from include single installment loan payments and multi-installment payments, and your choice depends on how quickly you think that you're going to have the money to pay back the loan. If it works better for you, you can even choose to pay weekly or bi-weekly.


People do not need to find out about your car title loan. These types of loans are completely private and totally confidential. Everyone experiences difficulty in life, yet there’s no reason anyone needs to find out about your situation. Federal and state privacy laws cover car title loans and credit agencies are not notified of them, so nobody besides you and the lender will ever have to know about your Memphis car title loan.

Mark Slater is the Outreach Relations Manager at Mid-South Title Loans.

Wednesday, January 24, 2018

3 Steps To Beat Your Debts And Stay Happy In 2018

How's it going everyone!  Today I have a fantastic guest post by a blogger that will surely have you conquering your debts and living happy in 2018.  Enjoy!

Our lives are full of problems.  Some can't sleep well at night, some can't find their soulmate, some can't seem to lose weight, some can't accomplish their dreams, some can't get a job, some don't like their job, and etc., etc.

But owing money to others or having debt is probably the biggest headache you can have!  It's a liability, pressure, call it whatever you want.

This year, break the debt cycle and know how to manage your debt and live happily (ever after)!  But before you plan to manage your debts, you must know how to manage your expenses.  So you need to follow these three steps that I'm about to show you.

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Step 1:
Try to lower your costs and revise your past mistakes.  As 2018 progresses, watch out for the mistakes you made in past years and analyze why you have amassed so much debt.  Try remembering whether or not you made any costly decisions or expensive purchases.  If you can recall what type of payment method you used for those purchases, even better!  Did you use credit, debit, or cash?  If it was a credit card, then buddy, that was a big mistake.

Tips to lower costs,

1.  Whenever you buy anything, think of what good use the item will be.  If you can't find any beneficial reason for buying the item, then drop the idea of buying it!

2.  Avoid using credit cards for random purchases at all costs!  Try using them only for emergency purposes.  I would say that even for big purchases, make a couple of month's planning.  Gather the cash and use it to pay for that specific purchase.  With credit cards, you pay twice.  Once today, and once tomorrow.  Today you pay the full price of the object, and tomorrow you pay for all of the interest!

3.  If you're planning to purchase insurance this year, make sure you don't overspend.  Buy only the coverage you need, e.g., starting off with Life, Home, and Auto policies.  Don't go overboard getting both a Term AND Whole life insurance.

4.  Avoid making late payments on your credit cards!  The more you delay, the more you'll be paying for interest and penalties, and the likelier your chance of ultimately defaulting.

Actually, this year you should make a resolution to cutdown on living above your means.  Change your lifestyle to the dedication of making extra payments on your debt and on saving if possible.  Set small goals and work on them one at a time.

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Step 2:
Build savings and earn extra.  To be clear, if you follow the above mentioned points, then you should have no problem making extra payments on your debt and saving a lot of money.  Whenever an opportunity presents itself for saving or making extra cash, grab it!

1.  If your income from your job isn't cutting it, get a side gig.

2.  Every month, try hard to save at least 20% of your income.  Without a healthy emergency fund, one unexpected expense will again have you falling into the debt trap.

3.  If you have two breadwinners in your family, say for example you and your spouse, combine both of your finances so that one income pays for the day-to-day expenses, while the other is used to build savings or to indulge in things from time to time.

4.  There are many ways you can invest your money to get a high future return.  Always have your investor cap on so you can increase your wealth.

After step 1 and step 2, you're now ready to ward off those evil debts!

Step 3:
Tips to manage your debts.  First you need to know how to be debt free.  No matter how hard you try, if you don't have good money habits, you just can't clear your debts.  Additional tips include:

1.  Don't rely on your credit cards for ALL purchases.

2.  Avoid luxury expenses.

3.  Once in a while use public transportation to cut back on gas.

4.  Save energy, like electricity, for instance.

5.  Don't get in fights with your spouse over debt.  Handle the situation calmly.  Go see a financial therapist or counselor if needed.

6.  If you have a lot of consumer debt, like credit card, personal or payday loans, consider debt settlement.  With debt settlement, you will be able to lower your payments significantly by negotiating with your creditors.  Use a settlement company if the process is too hard for you.

7.  Debt consolidation is a viable option.  Debt consolidation companies will help you rearrange your payment structure so that it better suits you.

8.  For secured loans like mortgage and auto loans, try out loan refinancing and/or modification.  Talk with your lender to see if any of these options are possible.

9.  If you have several loans to tackle at one time, try the debt avalanche method for making payments.  Target the debt amount with the highest interest rate and make extra payments on this account while making the minimum required payment on the rest.  This way you'll pay less interest over time.

Well, that was all.  Make sure you come out of 2018 debt free!  Follow all the steps I've discussed and you'll see great results, that's guaranteed!  Good luck!

Andy Masaki is a blogger at Pennylessdad.com and financial writer associated with the Oak View Law Group.  He is a debt expert and member of several online forums where he shares his advice as well as tips to lead a financially independent life.  

Friday, January 19, 2018

The Best Way To Teach Your Kids About Future Expenses

What's up everyone?  Today I read an article about a mother, whose Facebook post on teaching her daughter about money, has gone viral.  I don't have the Facebook post to share, but I can refer you to the site here.  Main thing is that the mother (Mrs./Ms. Essence Evans) is teaching her daughter, in a very unique and clever way I may add, how the real world works when it comes to spending.  The controversy, and indeed the reason why the post became viral, is because the child, at five-years-old, is considered too young to be learning about money like so:

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1)  Mother gives daughter $7 a week.

2)  Mother takes back from daughter $1 for rent, $1 for electricity, $1 for water, $1 for cable, $1 for food.  This amounts to $5 of real-life adult world charges the child has to pretend to pay back.

3)  Mother allows the daughter to save or spend the remaining $2.

4)  Mother actually saves the $5 in an account and will surprise daughter when she turns 18, giving her over $3,300 in cash to move out or use in any way.

Image result for Mother charges her 5 year old for rent
Essence Evans and her daughter

Let's discuss the merits of this technique:

For starters, the daughter learns how bills (expenses) work.  At five, she has no doubt seen her mother paying bills online or by writing out checks.  Now it becomes an experience she can relate to.  Moreover, the daughter can appreciate what "savings" is.  With an allowance, a child gets a set amount for chores or whatever agreement is shared within a family.  Children getting allowances never experience "parental" expenses.  They simple learn how to spend, how to save, or how to give.  All are great lessons, of course.  If a child, like Evan's 5-year-old experiences money taken away from her, she may value the remaining $2 a whole lot more, leading to more conscious decisions on spending or saving for toys, candy, etc.

Now let's talk the concerns with this technique:

From comments I read, the issue for some people is that Evan's daughter is a) too young to understand, b) may feel burdened by these concepts, and c) may experience financial insecurity when she should be enjoying childhood.  These are all valid concerns, but are they perhaps too damning?

Parenting Styles Differ And Not All Kids Are The Same

Let's acknowledge that little 5-year-old girls are different than little 5-year-old boys.  Also, not all 5-year-old children in America are the same.  Some children have above average maturity at age 5.  My daughter is such a child.  She preferred talking and being around adults at 5 more so than being around kids her age. All to say that let's not be too judgmental.

If it seems to harsh for you to do this to a 5-year-old, don't!  Wait until your child is a little older.  I suggest, 7.  Also what matters at any age for a child, is how you present the lesson.  If your approach is to treat the lesson more like a game, a child may be less inclined to see the "take back" as a punishment.  Moreover, make sure they understand that you're playing the role of a teacher, who happens to be a mommy or a daddy.  That way they don't associate "mommy taking my money" negatively.  In other words, the adult is also "pretending"!

How to Tweak this $$$ Lesson and Make It Even Better!!

Okay, I first have to give major props to Ms./Mrs. Evans for figuring out how to simulate the real world and teach personal finance to a 5-year-old.  Great job!

After thinking it through, I have a way you can tweak this lesson to simulate real-world expenses even better.  Since the changes are a little more convoluted, I suggest you do this with ages 6 and up to teens.

Ages 6-7:
Assign a simple to do chore or chores (no more than 3) to your child.  For example, they have to place napkins and silverware on the table for dinner each night.  Another example: They have to take out the recyclables to the bin in the backyard every day after school.  The chores will represent having a job and earning a salary (allowance) from it.  The pay will be $10/week.  The charges will be:

Rent: $3
Food: $1
Water: $1
Electricity: $1
TV/Streaming/Internet: $1
Income ($10) - Expenses ($7) = $3/week or $12/month 

Notice the rent is $3.  This is actually closer to what adults spend on housing.  Housing is 30% of a household budget for many Americans.  You decide what to do with the $28 you get back each month.  A Roth IRA for your kid is my suggestion.

Ages 8-12
Again, assign at least 2-3 chores.  You can level up how much harder you want your child to help you around the house.  Let's not forget that in the early 1900's, kids were helping around the farm, certainly working a lot harder than kids these days.  The pay will be $12/week.  The charges will be:

Rent: $3
Food: $1
Water: $1
Electricity: $1
TV/Streaming/Internet: $1
Cell Phone (If your child uses one at these ages): $1
Income ($12) - Expenses ($7-$8) = $4-$5/week or $16-$20/month

*By now your child should have learned that housing is very expensive.  They should also be wondering about whether or not using a streaming service is worth it.  They may want to strike deals with you.  Make sure you don't deviate on the price of rent, food, water, and electricity.  Last thing you want is a kid trying to bargain himself out of a shower.  Ha!  You could, however, use watching television, gaming, or use of Internet for non-educational purposes as a bargaining chip.  Maybe you don't charge them a $1 if they spend less than two hours a week watching YouTube video, Netflix, surfing the net, etc.??

Ages 13-18th Birthday

Assign the typical teen chores (cleaning their room once a week, e.g.) and add some life skills ones, e.g., doing your own laundry.  The pay will be $15/week.  The charges will be:

Rent: $3
Food: $1
Water: $1
Electricity: $1
TV/Streaming/Internet: $1
Cell Phone: $1
Transportation: $1 (Your high schooler will want rides everywhere)
Income ($15) - Expenses ($9) = $6/week or $24/month

*$24/month is not very much money for a teen these days.  Notice though that you're not charging them for clothes, money for the dance, etc.  You're still defraying the costs of these miscellaneous teen expenses.  So they may have all of their financial needs met, meaning they can save the $24 for additional things they want or even for college.

The Right Way to do This

The right way to do this is to hand your kids their "income" each week so they can feel the entire amount in their hand.  Don't just give them the difference of the income and expenses because it's more convenient.  For it to be most powerful, they have to feel the "pain" of giving money back to you, the bill collector.

Staying consistent by giving your child his/her income on the same day of the week, each week, also simulates "pay day" the best.  Let them hold onto all their income for at least 24-hours, and specify when all of the "bills" are due to you.  If they're late in paying you, tack on an additional $1 charge.  If they fail to keep their end of the deal on more than one occasion, terminate the arrangement until they're more mature to start at it again.

Thanks for reading!  What are your thoughts on all of this?    

Sunday, January 14, 2018

What To Do With A $40K Windfall Today

If you're coming into some serious cash within the next two months, great for you!  Much like winning the Lotto, it can be a huge rush.  If you don't have a plan of how you're going to use the windfall, you will be tempted to spend on things you wish you had before, but could never afford.  Like that awesome custom barbecue island!  Or that gorgeous Mercedes!  So prior to the money wire making it to your bank account, you must sit down and create a list of Must Do, and Can Wait.

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Your Must Do list needs to include (in this order) paying down debt, building your emergency reserves, and funding more of your retirement.  These are truly Must Do's.  Everything else, in theory, Can Wait.  Even if you should need a new fridge because your old one isn't cooling as well, for example, you can always keep it a little longer or wait to buy a new one at a Holiday sale.  But what if you had no debt to worry about, had plenty of cash savings, and didn't have a pressing need to buy anything new?  This is the exact scenario a teacher colleague of mine is facing.

He recently divorced and his ex-wife decided to keep the house she owned (on paper), but as a result of a settlement, needed to make my colleague an equity payment of $40K.  There are no taxes to pay in this exchange so the $40K is free and clear.  He knows I'm somewhat of a financial guru, but waited until almost meeting with a Mission Federal Credit Union rep to let me know how he intended to proceed with his windfall.  The rep had made some commission generating recommendations, obviously!  Like wanting my friend to buy a mutual fund from Jackson National.  He had no idea that this represented active management, number one.  Number two, it came with a plus 1% expense ratio.

When he shared this information with me, I had to metaphorically slap him!  After I educated him on active management versus what he could do on his own, we talked about his options.  He already has a variable rate 403(b), meaning his holdings are tied to the stock market.  He also has a Roth IRA, and he's on pace to fully fund 2017.

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Since he was very interested in the stock market, my first suggestion to him was that he look into buying a low-expense ratio Target Date Fund, like a Vanguard.  He quickly took out his phone and went online, finding the Vanguard TD 2040 page.  I explained how Target Date funds work, decreasing your stock ownership over time in favor of more bonds as you near retirement.  I showed him where to find the expense ratio, again emphasizing how much fees impact your returns over time.  Moments later he shared with me that the Jackson National fund the Mission Federal guy had proposed had outperformed the Vanguard TD 2040 by an additional 8%.  So came the next lesson:  

You must compare apples to apples when sizing up mutual funds.  A target date fund needs to be compared with other target date funds, not with full stock funds.  I didn't have the Jackson National fund prospectus or Portfolio Composition, but I explained that if this fund is composed of higher beta and/or growth stocks, it would explain the funds performance being so high.  After all, we've been in a bull market for years!  The bull market became the next topic of discussion.

He wanted to pluck in all of his $40K at once into the market.  Bad idea!  Never buy into the market all at once.  It's a cardinal investing sin.  I suggested the following:

1)  $10K into a low-expense target date fund.
2)  $6K into a Top National 6-Month CD (Rates are between 1-1.3%)
3)  $6K into a Top National 12-Month CD (Rates are between 1.75-1.82%)
4)  $6K into a Top National 18-month CD (Rates are between 1.8-2.12%)
5)  $6K into a Top National 24-month CD (Rates are between 2.1-2.27%)
6)  $6K into a Top National Money Market Account (Rates are between 1.4-1.55%)

Why such an emphasis on savings?  Well, the CD ladder above will allow my friend to buy into the market, if he should choose to, in 6 month increments.  (He can always continue the ladder by buying another 24-month CD).  The market is at an all-time high right now.  In 6 to 12 months, there will be more clarity.  And, with the Fed raising rates, it may be time to seriously consider adding short-term (maturity) government bonds, CD's, and MMAs to your portfolio.  The only thing I caution is for you to stay alert on the rate of inflation.  Right now as reported it is 2.1%.  As you can see from above, the only CD rate above this is the 24-month one.  But what my friend needs right now is staggered liquidity because his ultimate goal is to enter the stock market.

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If rates rise and inflation stays at 2.1%, he'll have a better chance of earning better returns on the CDs.  Now, I'm not the only one guiding people back into saving vehicles that offer muted returns.  This weekend's Barron magazine also did the same in an article titled, Last Rites for the Bond Rally, touting the benefits of buying short-term government bonds at auction via the website, treasurydirect.gov.

Whatever windfall amount is coming your way, deciding what to do with it will consume a ton of mental energy.  Don't sit on the cash, of course, placing it into a regular bank savings account.  But don't also go on a buying spree.  To my friend, $40K may as well be a fortune.  And in some respects, it is!  He needs to make the best possible decision and the only way to do that is knowing all there is to know.  No doubt the knowledge I have given him will lead to more initial indecision, but in the end he'll have made more sound moves with his money.

Thanks for reading!